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Lim to inject WCT assets into Pavilion REIT

By | Real Estate

Paradigm Mall

Businessman Tan Sri Desmond Lim Siew Choon is performing a corporate manoeuvre that may unlock value worth billions after emerging as the largest shareholder in WCT Holdings Bhd last Tuesday, say sources.

At the heart of Lim’s plan is the injection of WCT’s three shopping malls into Pavilion Real Estate Investment Trust (REIT), in which he and his wife, Tan Kewi Yong, together hold a 37.35% stake.

This will, in turn, help WCT clean up its balance sheet and lower its gearing ratio, which analysts believe will remove a persistent discount on the company’s share price.

While WCT had previously mooted a possible REIT listing of its malls by the end of the year, injecting them into an existing REIT would prove faster and easier to accomplish.

Analysts have pegged a valuation of RM1.2 billion to WCT’s three malls, namely Paradigm Mall in Petaling Jaya, AEON Bukit Tinggi Shopping Centre in Klang and [email protected] in Sepang. The group has another Paradigm Mall coming up in Johor Bahru that is scheduled to open next April, according to its website.

To recap, Lim got the market excited last Tuesday after he surfaced in WCT as its biggest shareholder with a 19.67% stake. His vehicle, Dominion Nexus Sdn Bhd, had acquired the shares in a direct deal from WCT Capital Sdn Bhd, which is the vehicle of WCT co-founders Peter Taing Kim Hwa and Wong Sewe Wing.

The acquisition price was not disclosed to Bursa Malaysia. However, Bloomberg data shows that several blocks of shares transacted at RM2.50 apiece last Tuesday, representing a premium of 42.85% to the stock’s closing price of RM1.75 that day. At RM2.50 each, the transaction would have cost Lim a total of RM614.3 million.

Following the property tycoon’s emergence in WCT, the company saw a boardroom shake-up with the old guard making way for Lim’s new line-up.

In a flurry of filings with Bursa last Wednesday, WCT announced that Datuk Capt Ahmad Sufian @ Qurnain Abdul Rashid had given up his post as board chairman. Lim is taking his place as executive chairman with immediate effect.

Meanwhile, Taing has resigned as managing director, citing his cessation as a substantial shareholder of the group. Executive director Wong Yik Kae, who is Sewe Wing’s son, has also exited the company to pursue personal interests, as has non-executive director Choo Tak Who.

Two independent, non-executive directors — Tan Sri Marzuki Mohd Noor and Datuk Abdul Wahab Khalil — have been named to the board, as has Datuk Lee Tuck Fook as non-independent, non-executive director.

Property developer Malton Bhd, in which Lim and his wife hold 35.34% equity interest via Malton Corp Sdn Bhd, also announced last Tuesday that Lim will be redesignated from executive chairman to non-independent, non-executive chairman from Jan 2. It cited Lim’s entry into WCT as the reason he relinquished his executive role in Malton.

While the exact terms of the mall injection are unclear for now, a cash payment for the assets would be a boon for WCT, which has been saddled with high gearing and a capital-intensive property operation that has been dragging its cash flow.

As at June 30, WCT had total borrowings of RM2.73 billion, RM578.5 million cash and total equity of RM2.707 billion, which translated into a net gearing ratio of 0.79 times. The group burnt cash in four of six consecutive financial quarters up to June 30.

An analyst suggests that this may be why the stock is relatively undervalued despite jumping 5.9% the day after news broke about the emergence of a new shareholder. It closed at RM1.80 last Wednesday. Its price-earnings ratio (PER) that day was 10.92 times compared with its peers’ average of 16.73 times, based on Bloomberg data.

Hong Leong Investment Bank and AmInvestment Bank ascribed a sum-of-parts (SOP) valuation of RM3.52 billion and RM3.98 billion respectively to WCT compared with its market value of RM2.25 billion at the close of trading last Thursday.

The SOP valuations translate into an implied share price of RM2.12 and RM2.38 each. This means Lim may have put a much higher valuation on WCT if he had indeed bought in at RM2.50 apiece on Nov 1.

The huge premium may also represent a carrot to WCT’s co-founders to exit immediately rather than pursue a longer-term, value-unlocking strategy via the original REIT listing proposal.

One possibility is that the RM2.50 share price is the valuation Lim is eyeing when the dust settles on his upcoming plan to unlock value in WCT via Malton and Pavilion REIT. “Of course, there would be concerns [among the minority shareholders] over whether the valuation is fair,” says an analyst.

Sources say following the injection of WCT’s malls into Pavilion REIT, the next step could be to streamline Malton’s construction business into WCT, which is far larger and has an established track record. For perspective, Malton’s market capitalisation as at Nov 3 was RM302.7 million or just under 14% that of WCT.

WCT’s construction order book stands at RM4.28 billion, a quarter of which is from its contracts totalling RM1.1 billion at the Petronas Refinery and Petrochemical Integrated Development project. Its construction arm saw total revenue of RM1.51 billion in the second quarter ended June 30 (2QFY2016), of which 58% were external sales.

In comparison, Malton’s construction arm reported a turnover of RM503.7 million in 2QFY2016 — 57.4% of which was internal, meaning it was undertaking its own construction projects. With a common major shareholder in Lim, these construction jobs are likely to be fed to WCT, boosting the latter’s construction business.

Streamlining the construction businesses under WCT would pave the way for Malton to focus on its property business, which is what the company is primarily known for.

Similarly, WCT’s property division is relatively small compared with its larger operation as a group. In 2QFY2016, this segment accounted for only 14.7% of quarterly group revenue, although its contribution to operating profit was larger at 43.1%.

Analysts generally agree that it is still early days to tell how the minority shareholders will be affected by Lim’s plan.

In a Nov 2 report, AllianceDBS Research says Lim’s emergence has cast uncertainty on the future direction of the company until more details are announced. HLIB echoes the sentiment, saying a potential risk is a significant change in WCT’s strategic direction.

Other analysts, however, feel that Lim’s presence as a shareholder is an upside for WCT, given his successful Pavilion brand name, noted business acumen and reputation for deal-making. For now, this is a space to watch for Corporate Malaysia observers.

This article first appeared in The Edge Malaysia on Nov 7, 2016. Subscribe here for your personal copy.

Mah Sing launches Lock & Roll deferred financing campaign

By | Real Estate

Legenda @ Southbay

PETALING JAYA (Nov 8): Mah Sing Group Bhd launched its inaugural Lock & Roll deferred financing campaign last weekend where Mah Sing homebuyers can now own their new homes once they have paid the booking fee of RM10,000.

In a statement today, Mah Sing said the campaign aims to enable easy home ownership for buyers.

“It is an innovative deferred financing plan where buyers can first ‘lock’ a unit in with RM10,000 booking fee and ‘roll’ out their cash for other priorities or investment purposes,” said the developer.

Buyers will serve the interest of their loan for the first 24 months and the full instalment will begin from the 25th month, which is when the property market is expected to recover, it said.

“We came up with the Lock & Roll campaign to help buyers own their dream homes and allow them to remain liquid for a generous amount of time,” said Mah Sing CEO Ho Hon Sang.

“In the current challenging market, property is still the best hedge against inflation and is considered as one of the most preferred investment opportunities in Malaysia.

“Therefore, I believe this scheme will be very beneficial to both investors and young families who are looking for a suitable home,”he added.

Participating projects for the developer’s Lock & Roll campaign include Icon Residence in Mont’Kiara, M Galleria in Rawang, Icon City @ Petaling Jaya, Aspen Bungalows and Garden Boulevard Shop in Cyberjaya, Austin V-Square Shops in Johor Bahru, and Ferringhi Residence, Legenda @ Southbay and Southbay Plaza on Penang Island.

Economists take positive view on ECRL’s long-term prospects

By | Real Estate

KUALA LUMPUR (Nov 8): Despite a controversial price tag, the East Coast Rail Link (ECRL) has earned some positive compliments from the analyst community for its potential to improve connectivity, which could spur more economic activity along the east coast.

UOB Malaysia economist Julia Goh told The Edge Financial Daily that “in a big picture”, she views ECRL as a positive move in improving connectivity.

“If you look at how the World Bank weighs whether a country is friendly to FDI (foreign direct investment), connectivity is one of the factors they always consider. We look at it from a bigger picture. If you look at some of the advanced economies like Europe and the US, there is anti-trade sentiment going on. Therefore having infrastructure projects like this to increase trade activities is a positive for Malaysia,” she explained over the phone.

AffinHwang Investment Bank Bhd construction analyst Loong Chee Wei concurred, saying the project also bodes well considering the Malaysia-China Kuantan Industrial Park and the Kuantan Port.

“These are the kind of multiplier effects that [we] can look forward to, for the stretch between the Klang Valley and Kuantan. It is a good project. The challenge is always getting the funding for it and the feasibility,” he said.

However, Loong noted that it remains to be seen if there will be high demand for the Kuantan to Tumpat portion of the rail project.

“It depends on what is the government’s purpose on this, sometimes for social purposes, a project may be loss-making but it will still continue regardless of commercial viability,” he explained.

In terms of the construction cost, Loong said he is not able to gauge whether RM55 billion is fair because details are not yet known.

“It is very hard for me to look at the total cost and determine whether it is expensive or not. We are not sure what is included in the RM55 billion,” he explained.

“Compared with the Ipoh-Padang Besar double track, which cost about RM38 million per km, ECRL is more than double,” said Loong. It may include financing costs but it cannot be ascertained at this juncture, he added.

At RM91.67 million per km, the ECRL is widely viewed as one of the costliest rail projects in the world. The Edge weekly’s latest issue, quoting industry experts, reported that the fair construction cost for the 600km stretch of ECRL would be RM30 billion.

Last week, Transport Minister Datuk Seri Liow Tiong Lai reportedly said that the construction cost for ECRL is actually less than RM55 billion. Instead the RM55 billion sum was simply the amount available under the financing framework.

On the other hand, JF Apex Securities’ senior analyst Lee Cherng Wee opined that the ECRL would be expensive, due to the mountainous terrain between the Klang Valley and Kuantan.

However, Lee qualified that the project value would be difficult to gauge because of the limited details.

While opposition politicians have condemned the project’s economic viability due to a lack of demand of rail services along the east coast, Lee pointed out this was a “chicken and egg” argument.

“The demand is low now, but is it because they don’t need it? Or because there has not been such a service for them before?” he questioned.

This article first appeared in The Edge Financial Daily, on Nov 8, 2016. Subscribe to The Edge Financial Daily here.

Titijaya teams up with CREC for RM2.1b Jalan Ampang mixed development

By | Real Estate

Titijaya CREC

KUALA LUMPUR (Nov 8): Property developer Titijaya Land Bhd has teamed up with CREC Development (M) Sdn Bhd (CRECD) to develop a mixed development on a 6.06-acre site at the Embassy Row in Jalan Ampang, Kuala Lumpur.

The mixed development named 3rdNvenue will have an estimated gross development value of RM2.1 billion. 3rdNvenue will comprise four blocks with a total of 2,400 units of Small-office Home-offices, serviced apartments and retail lots. The selling prices for these units will range from RM500,000 to RM1.2 million.

The project will be carried out in four phases over a period of seven years. The construction is expected to start in the first half of 2017.

Titijaya Resources Sdn Bhd (TRSB), a wholly-owned subsidiary of Titijaya, has entered into a share sale agreement with CRECD for the acquisition of the entire issued and paid-up capital of Ampang Avenue Development Sdn Bhd (Ampang Avenue) for a total purchase consideration of RM80 million from Ampang Avenue’s director and shareholder Chan Peng Kooh and Rafidah Menan. Ampang Avenue owns the 6.06-acre plot of land on Jalan Ampang.

Upon the conclusion of the deal, Titijaya and CRECD will hold 70% and 30% stakes respectively in Ampang Avenue.

CRECD is a wholly-owned subsidiary of China Railway Engineering Corp (M) Sdn Bhd (CREC), which in turn is a wholly-owned subsidiary of China Railway Group Ltd.

CREC is one of the shareholders of IWCH-CREC Sdn Bhd, which is a 60:40 joint venture company between CREC and Iskandar Waterfront Holdings Sdn Bhd (IWH), that will spearhead the development of Bandar Malaysia at the former Royal Malaysian Air Force Base in Sungai Besi.

The signing ceremony between Titijaya and CRECD today was witnessed by Urban Wellbeing, Housing and Local Government minister Tan Sri Noh Omar.

Speaking after the signing ceremony, Titijaya group managing director Tan Sri Lim Soon Peng said the partnership between the company and CRECD is an important milestone as it will broaden the company’s revenue stream.

“We believe this corporate exercise will complement our existing business in property development. It will also enable the company to seek new strategic growth and future expansion within property development in Greater Kuala Lumpur as well as ensure the future earnings sustainability of the company,” added Lim.

Meanwhile, Noh said the collaboration between Titijaya and CRECD is expected to have a positive impact on the industry and create more job opportunities for the local workforce. “Signing this agreement does not mean that we sell the sovereignty of Malaysia, instead it will help us develop the country” he said, adding that the agreement will also attract more foreign direct investment into Malaysia.

On a separate matter, Noh said the developer money lending licence proposal is still on the table. The ministry is asking the Real Estate and Housing Developers’ Association Malaysia, the National House Buyers Association and related non-government organisations for feedback on the terms and conditions for the licence.

Andrew Lim to be new group CFO of CapitaLand from Jan 1

By | Real Estate

SINGAPORE (Nov 8): CapitaLand Ltd has announced the appointment of Andrew Lim as its new group chief financial officer (CFO) with effect from Jan 1, 2017.

Arthur Lang, current group CFO, has decided to leave the company to pursue other career interests.

Lim will oversee the finance, treasury, tax, risk management and investor relation functions of the group, as well as looking after the administrative matters of its internal audit department.

He will be reporting to Lim Ming Yan, president and group chief executive officer (CEO) of CapitaLand.

“Andrew brings with him close to 20 years of investment banking and capital management experience in Singapore and internationally,” comments CEO Lim in a Tuesday statement.

Lim was former managing director and head of Southeast Asia (SEA) coverage advisory and SEA real estate at HSBC.

“I also want to express my heartfelt thanks to Arthur for his invaluable contributions to CapitaLand during his tenure as group CFO. Arthur has also played an instrumental role in several transformation transactions for the group.”

Lang joined CapitaLand on Aug 1, 2011, and has provided strategic insights into several major corporate actions as well as led the capital management efforts for the Group.

“I am very appreciative and thankful to chairman, the board and Ming Yan for the opportunities they have given me. We have a great team who has consistently upheld the best work standards and I wish everyone the best,” says Lang. 

As at 3:27pm, shares of CapitaLand are trading 1 cent higher at S$3.05 (RM9.22). — theedgemarkets.com.sg